Providing termination benefits for employees

ABSTRACT

A computer-based method for pricing and managing an insurance product under which an insurer will provide termination benefits to employees who are non-voluntarily terminated from employment by an employer. The product reduces adverse selection risks and durational risks associated with periods of unemployment.

BACKGROUND OF THE INVENTION

This invention relates to providing termination benefits for employeeswho have been non-voluntarily terminated from employment.

One common way to control such benefits is through a private arrangementbetween an employer and each displaced employee, for example, a standardseverance policy or a special termination package. Typical arrangementsprovide for a single payment on the date of termination. The amount ofthe termination payment is often based on the terminated employee'ssalary level and tenure. Outplacement services are sometimes offered.

Government sponsored unemployment insurance programs also typically paybenefits for a fixed number of weeks and usually are funded by premiumsimposed on employers.

Private long-term disability insurance, funded by premiums, paysbenefits when an employee is unable to work because of illness orinjury.

An employee can also privately obtain coverage that continues payment ofcredit obligations for a brief period during unemployment.

Non-voluntary job changes are common. The causes include “downsizing”,“rightsizing”, mergers and acquisitions, product line changes,technology advances, degregation expanding global markets, andgeographic redistribution of work force.

Although time between jobs tends to be limited for anyone who activelyseeks a new job, it can be longer than is provided for in typicalseverance packages. The “fixed” monthly living costs incurred bymoderate and high income employees, such as mortgage, credit card debt,tuition, car and insurance payments, tend to be large. An interruptionin an employee's income stream after termination from one job and beforethe start of another one can cause disruption in life style andjeopardize his credit rating and therefore be a significant concern tohim.

Many employers incur large costs for non-voluntary terminations of theiremployees. The annual costs of non-voluntary terminations may vary andin an occasional year be sharply higher than normal.

SUMMARY OF THE INVENTION

Among other things, the invention overcomes previous concerns about therisks associated with adverse selection by employers in connection withemployment termination insurance products and makes such productsfeasible and profitable.

In general, in one aspect, the invention features a computer-basedmethod for determining a price for an insurance product under which aninsurer will provide termination benefits to employees who arenon-voluntarily terminated from employment by an employer. Historicalinformation is stored about rates of termination of employees of theemployer who are non-voluntarily terminated during a predeterminedhistorical period. Other historical information is stored indicative ofperiods of time during which employees who are non-voluntarilyterminated are expected to remain unemployed. Based on the storedhistorical information, an amount of money is estimated that will berequired to pay termination benefits under the insurance product toemployees who are non-voluntarily terminated, assuming a continuation ofthe historical termination rates. A price is determined for theinsurance product that is smaller than the estimated amount of money sothat the employer's cost for termination benefits will be smaller underthe insurance product than without the insurance product.

In implementations of the invention, the historical information aboutrates of termination includes numbers of terminated employees per yearduring the historical period, salary histories of the terminatedemployees, tenures of the terminated employees, and job classificationsof terminated employees. The price for the insurance product isdetermined by considering different cells of employees separately, eachcell including employees whose salary histories and tenures fall withinpredefined ranges. The price reflects expected periods of unemploymentthat are shorter than the historical periods of unemployment. Theestimated amount of money that would be required to pay terminationbenefits is adjusted for expected inflation.

The insurance product includes a basic coverage that will providetermination benefits to no more employees than the average annualpercentage of employees who were non-voluntarily terminated during thepredetermined historical period, and the price determination reflectsthe basic coverage. The insurance product also includes an enhancedcoverage that will provide termination benefits to employees who exceedthe average annual percentage of employees who were non-voluntarilyterminated during the predetermined historical period, and the pricedetermination reflects the enhanced coverage. The enhanced coverage canbe limited by a stop loss amount, and the price determination is basedon the stop loss amount. Rights to the enhanced coverage are madeavailable over time only in accordance with a vesting schedule.

In some implementations, the determination of price for the enhancedcoverage yields a pricing formula based on numbers of terminations andthe pricing formula is applied retroactively based on actual terminationexperience.

A limit of coverage is determined for each of the cells expressed as amaximum percentage of employees in that cell who will be eligible forbasic termination benefits and if the stop loss approach is used forenhanced coverage, the vested percentage amount of the enhanced coveragefor each cell, and a separate sub-price is set for each of the cells.

In general, in another aspect, the invention features a computer-basedmethod for managing a durational risk associated with an insuranceproduct. Information is stored about dates of termination and historicalemployment experiences of employees who have been terminated fromemployment by the employer and are covered by the insurance product.Information about displacement duration is also stored. Based on thestored information, information is generated that is useful in assistingterminated employees in finding new jobs within periods that will reducethe impact of durational risk. Dates of reemployment of terminatedemployees are tracked. Payments of termination benefits are controlledbased on stored dates of termination.

In implementations of the invention, the payments are also controlledbased on individual pay period benefit amounts and cumulative benefitamounts.

In general, in another aspect, the invention features a computer-basedmethod of administering termination benefits. Information is stored thatidentifies separate time limits of termination benefits to be paid withrespect to employees belonging to different risk cells. Information isalso stored about claims made for termination benefits with respect tothe employees belonging to different risk cells. The limits oftermination benefits are compared with claims made for each of the riskcells, and benefits are withheld when the actual time for a risk cellexceeds the limit for the risk cell.

In implementations of the invention, information is stored about theperiods of time that an employee must remain unemployed beforetermination benefits are paid. The time periods are compared with anactual time period during which an employee has remained unemployed.Benefits are withheld until the actual time period exceeds the storedtime period.

Information may be received, stored, and searched about employeeseligible for state unemployment insurance benefits. The eligibleemployees can be compared with employees who are terminated fromemployment by the employer. Benefits may be withheld when a terminatedemployee's eligibility status for state benefits matches a rule forwithholding benefits.

In general, in another aspect, the invention features a computer-basedmethod of administering basic and enhanced coverages of insuranceproducts. The method includes calculating, storing, reporting anddistributing broker commissions, claims administration fees, IPoverride, fronting fees, carrier overhead, and premium tax, andcalculating and reporting required risk based capital.

In general, in another aspect, the invention features a computer-basedmethod for use in reducing a durational risk associated with aninsurance product. Information is stored that indicates receipt ofnotification of non-voluntary termination of an employee covered by thetermination benefits. Information is also stored that can be assembledinto prescripted interviews of terminated employees. In response to thestored information about notification of non-voluntary termination, aprescripted interview is provided to aid in accumulating informationuseful in placing the employee in a new job. The results of theinterview are sorted and stored.

In general, in another aspect of the invention, the durational risk isreduced by storing information about the qualifications of a terminatedemployee for reemployment, storing information about available jobs, andmatching the stored information. Retraining seminar may also beprovided.

Among the advantages of the invention are one or more of the following.For the employer, the insurance preserves cash flow, may reducetermination costs, makes the costs more predictable, helps manageearnings, protects against potentially catastrophic expenses associatedwith reductions in force, reduces exposure to displaced employeelitigation, maintains current year deductibility of premiums paid, andenhances the image of the employer as a good corporate citizen. To thecovered terminated employee, the invention provides salary continuationfor a specified period of time during unemployment and results-orientedjob placement services. To the insurer, the invention provides a neededcoverage to a substantial global market at a quantifiable risk andcompetitive price. Risk of adverse selection by employers is reducedboth with respect to the employer's employee pool as a whole, and withrespect to individual cells of employees. The manager of the delivery ofbenefits receives a fee for services and a possibility of additionalprofit if it successfully reduces the period of unemployment after thetermination.

Other advantages and features will become apparent from the followingdescription and from the claims.

BRIEF DESCRIPTION OF THE DRAWING

FIG. 1 illustrates an analysis of risk.

FIG. 2 illustrates employee cells.

FIG. 3 is a block diagram of parties to and processes of underwriting.

FIG. 4 is a block diagram of parties to and processes of claimadministration.

FIGS. 5, 6, and 7 are flow charts.

FIGS. 8A through 8U are pages of an insurance contract.

DESCRIPTION OF THE PREFERRED EMBODIMENTS

A concern of insurers (underwriters) with respect to any insuranceproduct is so-called adverse selection. If buyers of the insurance canmanipulate the nature or timing of events that trigger coverage underthe insurance, the insurer runs an intolerable risk that buyers willtake advantage of that possibility. Certain kinds of insurance have notbeen offered because of such adverse risk concerns.

Employment termination insurance, for example, has been viewed ascarrying such an adverse selection risk if the premium is based on somecalculated rate of terminations of all employees, e.g., an averagehistorical termination experience for all employees of the employer.

Employers often plan and are in control of the nature and timing ofmajor termination occurrences. They could buy such insurance with theintention of receiving coverage payments for a planned major terminationevent while paying a relatively small premium based on an assumed rateof terminations that reflects the employer's historical experience.Employers would also be able to plan in advance and control terminationoccurrences that are not extraordinary in terms of the number of peoplebeing terminated, but are extraordinary in terms of salaries.

The effect of adverse selection can be reduced enough to yield a viableinsurance product by changing the way in which the risks are isolated,the premiums are calculated, and the benefits paid. One way to reducethe adverse selection risk is to divide the coverage into a basecoverage and an enhanced coverage, and price the base and enhancedcoverages in different ways. Segmenting the employees of an employerinto cells by tenure, salary, and class also provides risk isolation.The coverage then is priced separately for each cell based on thehistorical termination experience for that cell. Coverage limits areapplied to each cell separately.

As seen in FIG. 1, historical non-voluntary termination information fora wide range of employers shows three categories of insurance risk. Thesame analysis also applies to the employee pool of an individualemployer, and to employee cells within the employee pool of a givenemployer.

A base risk 20 is associated with normal non-voluntary terminations thatoccur continually in the ordinary course of business for anyestablished/mature employer. This base risk varies little over manyyears and typically represents about 1.67% terminations per year.Because the variability is small, this risk can be accurately quantifiedas the average annual non-causal terminations experienced by theemployer during an historical five-year period.

An aberrant risk 22 is associated with occasional short-lived “spikes”with moderately higher terminations than for the base risk. These couldbe associated, for example, with a termination scenario that involves aplant closing, a contract termination, a workforce consolidation, or asale of an affiliate. The aberrant risks typically occur periodicallywith a period of Y years (e.g., Y=3, 4, or 5 years) and may involve,e.g., 2.5% to 5% terminations per year.

A catastrophic risk 24 may occur periodically with a period Z (e.g.,Z=5, 7, or 10 years) that is longer than period Y. The termination ratecould be as much as 10% to 15% per episode. Examples of catastrophictermination are a corporate restructuring, workforce realignment, orcompetitive or technological pressures. A catastrophic termination eventcaused by a Chapter 7 or Chapter 11 filing is an excluded event.

In a year in which an aberrant episode occurs, the 2.5% to 5%termination includes (is not in addition to) the normal 1.67% that wouldbe expected for that year.

The base risk can be insured in a way that is largely insulated fromadverse selection because its variability tends to be small and isinherent in the relationship between the employer and employee,especially given the pressures of technology, deregulation, and a globaleconomic marketplace. Aberrant and catastrophic risks are subject toadverse selection because they are more highly variable and controllableby an employer.

A non-voluntary termination insurance policy for an employer may providebase coverage for the base risk and enhanced coverage for at least partof the aberrant and catastrophic risks. The premium that is charged forthe coverage and the limits on the coverage are determined separatelyfor each of the employee cells of the employer.

As seen in FIG. 2, each employee cell 10 may be diagrammed (threedimensionally) based on the range of salaries, job classes (e.g.,secretary, senior manager, labeled A, B, C, D), and range of tenure inyears (e.g., 0-5 years) to which its members belong. (An employee musthave three years of tenure to be vested and qualified for coverage.)

The coverages provided by the insurance are defined in the policy.Before the insurance contract is signed, the employer specifies theamount and duration of benefits to be paid to qualifying employees ineach cell who are terminated unilaterally by the employer for non-causalreasons. For example, senior managers with 5 to 10 years of tenure andsalaries between 50,000 and 75,000 may be given 26 weeks of terminationbenefits. The weekly termination benefit is set at a percentage (e.g.,100%) chosen by the employer at the time the insurance is bought.

The policy sets a maximum limit on the number of employees in each cellfor whom base coverage will apply. The maximum is based on a movingfive-year historical average base risk experience for terminations ofthat cell. For example, if the cell described above had an historicalannual average termination rate of 1.67%, the policy would providetermination benefits for as many as, but no more than, 1.67% of theemployees in that cell during the first year of the policy. At the endof the first year, and each subsequent year, the historical averagepercentage is recomputed rated on the previous five years (and in thatsense in a running average). In determining the average, if any, of theprevious five years has a rate that is more than 10% higher than therunning average (e.g., 10% in one year when the running average is1.67%) that percentage is reduced to 1.1 in the running average(1.1×1.67, in the example) and the running average is recomputed.

The policy also may set a maximum limit on the number of employees ineach cell for whom (enhanced) coverage will apply. The maximum is basedon a stop loss percentage selected by the employer, (e.g., 5% or 15%).The stop loss percentage is conceptually attributable to aberrant andcatastrophic risks but is not necessarily the same as any historicallydetermined percentage. If the chosen stop loss percentage is 5% in ourexample, the extended coverage of the policy would provide terminationbenefits for 3.33% (5% minus the 1.67% already covered by base coverage)of the employees in that cell each year.

However, in one implementation approach, the maximum terminationbenefits for extended coverage are not fully available in the first yearof the policy. Rather they are phased in (vested) over several years.For example, in the first year, only 20% of the 3.33% would vest. So inthe first year, the maximum benefit under extended coverage for the cellwould be 0.66% of the number of employees in that cell. The reason forrequiring vesting is to reduce the risk of adverse selection bypreventing an employer from reaping the full coverage for a plannedaberrant episode in, for example, the first year after buying thepolicy.

An alternative way to provide extended coverage while reducing theadverse selection risk is to price the extended coverage retroactively.In this approach, the employer is given the pricing formula beforebuying the policy. Full enhanced coverage begins immediately, but theemployer is charged after the fact, at the agreed pricing, for years inwhich the termination experience exceeds the base coverage and fallswithin the extended coverage.

The premium to be paid by the employer for the insurance policy isdetermined by adding cell premium amounts determined for each categoryof coverage (base and extended) of the employee benefit cells of thatemployer. The premium amount for a cell is based on the benefit amountsand durations for that cell, the historical experience for that cell, adeductible amount and the stop loss percentage chosen by the employer,if applicable.

The premium amount for each category of coverage is a fraction of thetermination expense that the employer would otherwise incur ifterminations occurred at the historical rate (for base coverage) or atthe stop loss rate (for extended coverage if applicable). The fractionis expressed in terms of the number of weeks of coverage for which theemployer is charged in the premium compared with the stated number ofweeks of benefit.

For example, if the historical base coverage experience is 1.67% and thetermination benefits extend for 26 weeks, the premium could be set basedon 18 weeks so that the employer pays 18/26 of 1.67% of the averagesalary of employees in that cell multiplied by the number of employeesin the cell, for base coverage, net of unemployment insurance benefitsreceived by the terminated employee.

A similar computation applies to the extended coverage with respect tothe 3.33% (in the example discussed above) except that the numerator maybe a higher number of weeks, say 20 weeks, to accommodate the fact thatthe duration of unemployment may be somewhat longer in aberrant orcatastrophic termination scenarios than for the base risk.

By making the premium computation on a cell by cell basis, high salarycells will bear higher premium amounts for coverage that is limited asto those cells. This reduces the risk of adverse selection by anemployer with respect to planned termination scenarios involving onlyhigh salary employees.

If the time it takes for an employee to become re-employed is the sameas the benefits period (e.g., 26 weeks), the insurer would lose moneybecause the premium only contemplates that benefits will last for ashorter period (e.g., 18 weeks). The result of the pricing approach isthat the employer gets a reduction in his average annual terminationexpense. The insurer would undertake the risk (called a durational risk)that termination benefits will actually be greater than the premium. Forexample, assuming a 26 week benefit, the premium may only be based on 18weeks. The insurer could also benefit from the upside of reemploymentexperience that is better than 18 weeks. The insurer, at its option,could choose to assume deceptional risks at different points in the 26week period, for example, during the final two weeks.

However, in implementing the insurance product, the insurer may delegateboth the downside risk and the upside potential implicit in the pricingstrategy to a claims administrator. The insurer would pay the claimsadministrator exactly the number of months of benefit payments reflectedin the premium amount (e.g., 18 weeks) for each terminated employee,regardless of the actual number of weeks of unemployment. The claimsadministrator would bear the obligation to pay the employee for some orall of the full coverage (e.g., until the employee is re-employed, up to26 weeks) and would receive the profit and bear the loss of anydifference between the actual amounts paid to the employee (until he isre-employed) and the premium-linked amounts received from the insurer.

An example of an insurance policy that provides such benefits is shownin FIGS 8A-8U.

Additional factors affect the coverage provisions of the policy and thepricing of the premium. The pricing model must take account of the taxrate on the premium, the fronting fee paid to the insurance entity, theexpenses of administering claims, the fee to the claims administrator,overhead of the insuring entity including IP royalties, profit that isexpected to be reaped on the premium by the insurer, costs ofreinsurance, income from investments of funds, the government managedunemployment insurance benefits rates, the FICA and FUTA tax rates tothe employer, the workmen's compensation premium rate of the employer,and the cost of outplacement services.

An employee who is placed in a new job and then either loses it orelects to leave will return to the coverage pool for the remainingbenefit period or until he is re-employed, but the period during whichhe was not being paid by the claims administrator represents potentialprofit to the claims administrator.

The pricing can be done using a model created as a Microsoft Excelspreadsheet. An example of such a model that uses the inputs discussedabove to generate a premium for the product was filed with the originalpatent application in the form of a CD-ROM and is available in the fileof the United State Patent and Trademark Office. The file name isTEMPLATE.XLS and it can be run on Microsoft Excel 97, a copy of which isalso being provided. Other kinds of software could be used to computethe insurance prices. The software could be run on any conventionalpersonal computer or on any variety of other computer platforms. Thesoftware and all of the data needed for the pricing computations couldbe stored on a hard disk drive or other media.

As seen in FIG. 3, the insurance policy is sold by a broker 34 to anemployer 30, which has qualified employees 32 who are covered by thetermination benefits. Before the sale may be completed, the employerprovides underwriting data 36 to an insuring entity 40 and the insuringentity 40 provides a price 38 (premium) to the employer. Theunderwriting data is loaded onto a storage medium in a computercontrolled by the insuring entity and is used by the pricing model togenerate the price. The insuring entity gives the broker authority 54 touse its name and make the sale on its behalf.

The insuring entity 40 provides a variety of services associated withthe underwriting process. It does market research to identify prospectsand does preliminary qualification of targets. It helps with preparingpreliminary sales calls and with the initial presentation, includingassistance with selection of variables and benefits. The insuring entityalso gathers the historical data specific to the prospective customer.It develops the pricing and makes the underwriting decision. It helpswith follow-up presentations including cost/service analyses. Once theunderwriting decision is made, the insuring entity provides the policyand other documentation, activates the account, books claim liabilities,tracks amounts, frequency and duration of, and either directly orthrough the claims administrator pays claims, assists in providingretraining (when appropriate) and provides job search assistance, e.g.,through a claims administrator.

The underwriting data includes historical termination information abouteach cell of employees. The data also includes choices made by theemployer that affect the computation of the price. The choices mayinclude the weeks of benefits (e.g., 26 weeks) that will be given toemployees in each of the cells, the percentage of salary which willdefine the benefits, a deductible amount for enhanced coverage, and astop loss percentage, if applicable.

The underwriting data is stored in computer readable form on a storagemedium and used on a computer as part of the pricing model. The insuringentity uses the underwriting data to generate the price based onsubprices generated for each of the employee cells separately.

Once the price has been set and the employer agrees to buy the policy, acontract 50 (FIGS. 8A to 8U) is provided by the insuring entity to theemployer. In return, the employer pays an annual premium 52.

The insuring entity 40 can be structured in a wide variety of wayseither within one company or by agreements among companies. In theexample shown in FIG. 3, a lead insurer 56 issues the policy andreceives the premium but then cedes portions of the risks and premiumsto a guarantor 58 and to a reinsurer 60. Excesses 61 of premiums overbenefits paid are invested by an investment manager 62. The insuringentity uses computer software to track the effectiveness of theinvestment manager.

The insurance policy provides base coverage and enhanced coverage (ifthe employer so chooses). The lead insurer retains the obligation to paybenefits on a percentage (e.g., 10%) of the base coverage, retains partof the premium as compensation for that risk, and receives a frontingfee of, say, 1% for its role in organizing the insurance entities.

The lead insurer cedes a percentage (e.g., 90%) of the base coveragerisk and a percentage (e.g., 10%) of the enhanced risk obligation to theguarantor and pays, e.g., 89% of the base premium and 10% of theenhanced premium to the guarantor. The remaining 90% of the enhancedcoverage risk is ceded to the reinsurer and 90% of the premium is paidto the reinsurer to compensate for its assumption of that risk.

The guarantor lends the use of its name (and implicitly its brandidentification and reputation) to the lead insurer. The guarantor usesan underwriting model, described below, to develop the prices based onthe historical termination data for an employer. The lead insurerlicenses 100 a claims administrator 68 to manage the payment of benefitsand the delivery of placement services. The claims administrator couldbe part of the insuring entity. If not, the lead insurer also pays theclaims administrator an administrative fee 102.

As seen in FIG. 4, during the policy period, claims management andbenefit payments are handled cooperatively by the claims administrator,the lead insurer 56, the employer 30, staffing agencies 70, and trainingprovider, that have arrangements with the claims administrator.

When the employer 30 non-voluntarily terminates an employee 32, noticeof displacement 33 and a copy of the appropriate employee file is sentfrom a computer 31 of the employer electronically to a computer 57 ofthe lead insurer. The information 35 is promptly forwardedelectronically from the lead insurer's computer to a computer 69 of theclaims administrator.

Each time a payment is made, an invoice is automatically generated andpassed from the administrator's computer to the lead insurer's computer.Funds to cover the benefits are then returned electronically to theclaims administrator. The reimbursement by the lead insurer of itspercentage of the benefit obligations continues even after the employeereturns to work. If that occurs earlier than the end of the benefitperiod, the subsequent reimbursement payments by the lead insurer arekept for the account of the claims administrator. This gives theadministrator a strong incentive to get each terminated employeere-employed at the earliest possible time.

Payments and services to the employee continue automatically untileither the benefit period defined for that employee's cell ends, or theemployee finds another job if that occurs sooner. If so, notice of thenew employment is given to the claims administrator's computer and ispassed along electronically to the staffing agency computer as aninstruction to cease work.

To obtain benefits, the employee must also promptly give a notice toactivate service benefits 71 to the claims administrator 68. The noticeto activate is matched in the computer 69 with the employee file thathas already been received from the lead insurer, which initiates thesteps required to provide the termination benefits. The computer 69 isarranged to provide resume information, employment files, and notices 79automatically to approved staffing agencies 70, which contact theemployees and provide placement and other services aimed at helping eachemployee to find a new job, reporting each client contact to the claimadministrator. The claims administrator may also provide assistance inplacement. The fees of the staffing agencies are paid by the claimsadministrator.

The responsibilities of the claims administrator include assigning anindividual claim administrator to each terminated employee. The claimadministrator has direct telephone contact with the terminated employeeusing a pre-scripted interview and develops a standard resume. Adatabase search is done for possible matches with the employee's skills.Interviews may be scheduled. Training may be recommended and scheduled.Benefit payment authorizations are also reviewed and authorized.

Based on the day of termination, the employee cell to which the employeebelongs, and the benefits to be provided (all of which are provided tocomputer 69 by the lead insurer), computer 69 automatically determinesthe dates and amounts of benefit payments to be made and mails checks ormakes direct electronic deposits for the employee. The amounts of thepayments are reduced by the amounts of state unemployment benefitswhether applied for and received or not. Information 77 about thosewould have been initially loaded in computer 69 from as part of theoriginal claim management software.

The main business strategy of the claims administrator is to reduce theperiod of unemployment (displacement duration) so that it can maximize,as its profit, the difference between the coverage payments receivedfrom the insuring entity and the benefit amounts paid to covered,terminated employees. To achieve this, the claims administratormaintains strategic relationships with specialty staffing service firmsand specialty training companies, which provide temporary, contract, andpermanent placement of professional and technical employees and place ahigh value on retraining.

Flow charts can be used to illustrate methods of the invention.

Referring to FIG. 5, determining a price 300 for a product includes thefollowing sequence. Historical information is stored 302 about rates oftermination of employees of the employer who are non-voluntarilyterminated during a predetermined historical period. The informationincludes numbers of previously terminated and processed employees 304,salary histories 306, tenures 308, and job classifications 310.Historical information is also stored 311 indicating periods of timeduring which employees who are non-voluntarily terminated are expectedto remain unemployed 311, including unemployment durations of terminatedemployees 312.

Limits of basic and enhanced coverage for each employee cell areestablished 314 using information provided by the insured.

The pricing process considers enhanced and basic coverages separatelyfor each cell 316. An estimate is made 318 of the amount of money thatwill be required to pay termination benefits under the basic insuranceproduct to employees who are non-voluntarily terminated, assuming acontinuation of the historical termination rates.

The enhanced coverage can be based on the agreed stop loss amount 320.The price determined to this point for each cell is then adjusted forexpected inflation 322. The price for the insurance product is set to besmaller than the estimated amount of money 324 so that the employer'scost for termination benefits will be smaller under the insuranceproduct than without the insurance product.

If the enhanced coverage portion of the product is not to be pricedretroactively 326, then a price is set and a vesting schedule is created328. If the enhanced coverage portion of the product is to be pricedretroactively, a pricing formula can be generated for each cell and aretroactive payment schedule can be set 330.

The process of payment of termination benefits 398 includes storingclaims information 400 based on notifications of non-voluntaryterminations; storing information about time limits of terminationbenefits for each cell 402, and storing displacement durationinformation 404. Information useful in assisting terminated employees tofind new jobs is generated 406. This is done based on information aboutemployment qualifications 408, information for prescripted interviews410, and available jobs.414. Dates of reemployment are tracked 416.Limits of termination benefits are compared with claims made, by cell418. Limits implied by any vesting schedule are applied to enhancedbenefits 419. Benefits may be withheld based on the employee'seligibility for state benefits 421. Termination benefits are paid 420based on individual pay period benefit amounts 422, cumulative benefitamounts 424, and reemployment dates 426.

Referring to FIG. 7, the process for managing employment terminationinsurance finances 500 includes several steps. Data about premiums paidis stored 502 as is data about benefits paid 504. Broker commissions arecalculated and paid 506 as are claims administration fees 508, frontingfees 510, carrier overhead 512, and taxes on premiums 514. Risk-basedcapital is also calculated and reported 516.

Other embodiments are within the scope of the following claims.

For example, the coverages could be split explicitly into three parts,instead of bundling them into two coverages. The three coverages couldbe basic, aberrant, and catastrophic.

What is claimed is:
 1. A computer-based method for use in connectionwith an insurance product under which an insurer will providetermination benefits to employees of an employer who are non-voluntarilyterminated from employment by the employer, the method comprising:storing historical information about rates of termination of employeesof the employer who are non-voluntarily terminated during apredetermined historical period, and historical information indicativeof periods of time during which employees who are non-voluntarilyterminated are expected to remain unemployed, based on the storedhistorical information, estimating an amount of money that will berequired to pay termination benefits under the insurance product toemployees who are non-voluntarily terminated, assuming a continuation ofthe historical termination rates, determining a price for the insuranceproduct that is smaller than the estimated amount of money so that theemployer's cost for termination benefits will be smaller under theinsurance product than without the insurance product, and making theprice available to a party for use in connection with offering theinsurance product to the employer.
 2. The method of claim 1 in which thehistorical information about rates of termination includes numbers ofterminated employees per year during the historical period.
 3. Themethod of claim 1 in which the historical information about rates oftermination includes salary histories of the terminated employees. 4.The method of claim 1 in which the historical information about rates oftermination includes tenures of the terminated employees.
 5. The methodof claim 1 in which the historical information includes jobclassifications of terminated employees.
 6. The method of claim 1 inwhich the historical information includes the numbers, salary histories,and tenures of terminated employees and the price for the insuranceproduct is determined by considering different cells of employeesseparately, each cell including employees whose job classifications,salary histories and tenures fall within predefined ranges.
 7. Themethod of claim 1 in which the price reflects expected periods ofunemployment that are shorter than the historical periods ofunemployment.
 8. The method of claim 1 in which the estimated amount ofmoney is adjusted for expected inflation.
 9. The method of claim 1 inwhich the insurance product includes a basic coverage that will providetermination benefits to no more employees than the average annualpercentage of employees who were non-voluntarily terminated during thepredetermined historical period, and the price determination reflectsthe basic coverage.
 10. The method of claim 9 in which the averageannual percentage is adjusted to reduce the impact of years in which thepercentage of employees who were non-voluntarily terminated isaberrantly high.
 11. The method of claim 1 in which the insuranceproduct includes an enhanced coverage that will provide terminationbenefits to employees who exceed the average annual percentage ofemployees who were non-voluntarily terminated during the predeterminedhistorical period, and the price determination reflects the enhancedcoverage.
 12. The method of claim 11 in which the enhanced coverage islimited by a stop loss amount, and the price determination is based onthe stop loss amount.
 13. The method of claim 12 in which rights to theenhanced coverage are made available over time only in accordance with avesting schedule.
 14. The method of claim 12 in which the determinationof price for the enhanced coverage yields a pricing formula based onnumbers of terminations and the pricing formula is applied retroactivelybased on actual termination experience.
 15. The method of claim 1further comprising storing information about employment demographics ofemployees of the employer sufficient to categorize the employees intorisk cells, determining a limit of coverage for each of the cellsexpressed as a maximum percentage of employees in that cell who will beeligible for termination benefits, and setting a separate sub-price foreach of the cells.
 16. The method of claim 1 further comprising storinginformation about employment demographics of employees of the employersufficient to categorize the employees into risk cells, and establishinga separate pricing formula for each of the cells to be appliedretroactively at each anniversary date of the policy.
 17. The method ofclaim 15 in which the employees are categorized based on salary, tenure,and job classification.
 18. The method of claim 16 in which theemployees are categorized based on salary, tenure, and jobclassification.
 19. A computer-based method for use in connection with acomponent of price for a portion of coverage of an insurance productunder which an insurer will provide termination benefits to employees ofan employer who are non-voluntarily terminated from employment by theemployer, the method comprising: storing historical information aboutrates at which employees of the employer were non-voluntarily terminatedin excess of an average rate of terminations during a predeterminedhistorical period, storing a predetermined maximum number of employeesin excess of the average historical rate of terminations who will becovered by the portion of the coverage for which the price component isbeing determined, determining the component of price based on thepredetermined maximum number of employees, and making the component ofprice available to a party for use in connection with offering theinsurance product to the employer.
 20. The method of claim 19 in whichthe historical information about rates of termination includes numbersof terminated employees per year during the historical period.
 21. Themethod of claim 19 in which the historical information about rates oftermination includes salary histories of the terminated employees. 22.The method of claim 19 in which the historical information about ratesof termination includes tenures of the terminated employees.
 23. Themethod of claim 19 in which the historical information includes jobclassifications of terminated employees.
 24. The method of claim 19 inwhich the historical information includes the numbers, salary histories,and tenures of terminated employees and the component price for theinsurance product is determined by considering different cells ofemployees separately, each cell including employees whose jobclassifications, salary histories and tenures fall within predefinedranges.
 25. The method of claim 19 further comprising storing historicalinformation indicative of periods of time during which employees who arenon-voluntarily terminated are expected to remain unemployed, thecomponent price reflecting expected periods of unemployment that areshorter than the historical periods of unemployment.
 26. The method ofclaim 19 in which the component of price is based on the stop lossamount.
 27. The method of claim 19 further comprising: storinginformation about employment demographics of employees of the employersufficient to categorize the employees into risk cells, determining alimit of coverage for each of the cells expressed as a maximumpercentage of employees in that cell who will be eligible fortermination benefits, and setting a separate sub-price for each of thecells.
 28. The method of claim 27 in which the employees are categorizedbased on salary, tenure, and job classification.
 29. A computer-basedmethod for use in connection with a component of price for a portion ofcoverage of an insurance product under which an insurer will providetermination benefits to employees of an employer who are non-voluntarilyterminated from employment by the employer, the method comprising:storing historical information about rates at which employees of theemployer were non-voluntarily terminated in excess of the average rateof terminations during a predetermined historical period, determiningthe component of price for the actual number of employees who areterminated in excess of the average rate of terminations during thepredetermined historical period, and making the component of priceavailable to a party for use in connection with offering the insuranceproduct to the employer.
 30. The method of claim 29 in which thehistorical information about rates of termination includes numbers ofterminated employees per year during the historical period.
 31. Themethod of claim 29 in which the historical information about rates oftermination includes salary histories of the terminated employees. 32.The method of claim 29 in which the historical information about ratesof termination includes tenures of the terminated employees.
 33. Themethod of claim 29 in which the historical information includes jobclassifications of terminated employees.
 34. The method of claim 29 inwhich the historical information includes the numbers, salary histories,and tenures of terminated employees and the component price for theinsurance product is determined by considering different cells ofemployees separately, each cell including employees whose jobclassifications, salary histories and tenures fall within predefinedranges.
 35. The method of claim 29 in which: the component price is usedin connection with an insurance product having a basic coverage thatwill provide termination benefits to no more employees than the averageannual percentage of employees who were non-voluntarily terminatedduring the predetermined historical period, and a composite price iscomputed based on the component price and a basic price associated withthe basic coverage.
 36. The method of claim 29 in which: the componentprice is used in connection with an insurance product having an enhancedcoverage that will provide termination benefits to employees who exceedthe average annual percentage of employees who were non-voluntarilyterminated during the predetermined historical period, and the componentprice determination reflects the enhanced coverage.
 37. The method ofclaim 36 in which the enhanced coverage is limited by a stop lossamount, and the component of price is based on the stop loss amount. 38.The method of claim 37 in which the determination of price for theenhanced coverage yields a pricing formula based on numbers ofterminations and the pricing formula is applied retroactively based onactual termination experience.
 39. A computer-based method for use inconnection with a price for coverage of an insurance product under whichan insurer will provide termination benefits to employees of an employerwho are non-voluntarily terminated from employment by the employer, themethod comprising: storing information about employment demographics ofemployees of the employer sufficient to categorize the employees intorisk cells, determining a limit for basic coverage for each of the cellsexpressed as a maximum percentage of the total number of employees inthat cell who will be eligible for termination benefits, setting aseparate price for basic coverage for each of the cells, determining alimit for enhanced coverage for each of the cells expressed as a maximumpercentage of the total number of employees in that cell who will beeligible for termination benefits, setting a separate price formula forenhanced coverage for each of the cells, determining the price forenhanced coverage for each of the cells retroactively based on theactual number of employees who are terminated in excess of an averagerate of terminations during a predetermined historical period, andmaking the retroactively determined price available to a party for usein connection with charging the employer for the insurance product. 40.The method of claim 39 in which the information about employmentdemographics includes numbers of terminated employees per year duringthe historical period.
 41. The method of claim 39 in which theinformation about employment demographics includes salary histories ofthe employees.
 42. The method of claim 39 in which the information aboutemployment demographics includes tenures of the employees.
 43. Themethod of claim 39 in which the employment demographics includes jobclassifications of the employees.
 44. The method of claim 39 furthercomprising storing historical information indicative of periods of timeduring which employees who are non-voluntarily terminated are expectedto remain unemployed, the price reflecting expected periods ofunemployment that are shorter than the historical periods ofunemployment.
 45. The method of claim 39 in which the determined priceis adjusted for expected inflation.
 46. The method of claim 45 in whichthe average annual percentage is adjusted to reduce the impact of yearsin which the percentage of employees who were non-voluntarily terminatedis aberrantly high.
 47. The method of claim 39 in which the price forenhanced coverage is limited by a stop loss amount.
 48. The method ofclaim 39 in which the employees are categorized based on salary, tenure,and job classification.
 49. A computer-based system for use inconnection with a price for insurance that provides termination benefitsto employees of an employer who are non-voluntarily terminated fromemployment by an employer, comprising: storing information abouthistorical termination experience for the employees, determining a baserisk representing a component of the termination experience that has arelatively smaller variation over a period of years, setting a riskcomponent of the price associated with covering the smaller variationbase risk, setting a second component of the price associated withcovering an enhanced risk with a predefined limit of coverage, theenhanced risk representing a component of the termination experiencethat has a relatively larger variation over a period of years,determining the price based on the first and second components, andmaking the price available to a party for use in connection withoffering the insurance product to the employer.
 50. The method of claim49 in which the second component comprises a pricing formula, and thedetermining of the price is done retroactively by applying the formulato actual termination to determine the second component.
 51. The methodof claim 49 in which the information about termination experienceincludes the numbers of terminated employees per year during ahistorical period.
 52. The system of claim 49 further comprising storingsalary histories of the terminated employees.
 53. The system of claim 49in which the in formation about termination experience includes tenuresof the terminated employees.
 54. The system of claim 49 in whichinformation about termination experience includes job classifications ofterminated employees.
 55. The system of claim 49 further comprisingstoring the numbers, salary histories, and tenures of terminatedemployees and the price for the insurance product is determined byconsidering different cells of employees separately, each cell includingemployees whose job classifications, salary histories and tenures fallwithin predefined ranges.
 56. The system of claim 49 in whichinformation about termination experience includes historical informationindicative of periods of time during which employees who arenon-voluntarily terminated are expected to remain unemployed, the pricereflecting expected periods of unemployment that are shorter than thehistorical periods of unemployment.
 57. The system of claim 49 in whichthe price is adjusted for expected inflation.
 58. The system of claim 49in which the second component is limited by a stop loss amount.
 59. Thesystem of claim 49 in which rights to enhanced coverage associated withthe second component are made available over time only in accordancewith a vesting schedule.
 60. The system of claim 49 in which thedetermination of the second component price yields a pricing formulabased on numbers of terminations and the pricing formula is appliedretroactively based on actual termination experience.
 61. The system ofclaim 49 further comprising: storing information about employmentdemographics of employees of the employer sufficient to categorize theemployees into risk cells, determining a limit of coverage for each ofthe cells expressed as a maximum percentage of employees in that cellwho will be eligible for termination benefits, and setting a separatesub-price for each of the cells.
 62. The system of claim 49 furthercomprising: storing information about employment demographics ofemployees of the employer sufficient to categorize the employees intorisk cells, and establishing a separate pricing formula for each of thecells to be applied retroactively at each anniversary date of a policyassociated with the insurance.
 63. The system of claim 61 in which theemployees are categorized based on salary, tenure, and jobclassification.
 64. The system of claim 62 in which the employees arecategorized based on salary, tenure, and job classification.